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Signs of Life in 3M’s Portfolio Cause Us to Revisit Our Assumptions; We Raise Our FVE

Joshua Aguilar Equity Analyst

Analyst Note

| Joshua Aguilar |

Wide-moat rated 3M had a solid third quarter that we think the market failed to appreciate. While we were initially frustrated by the company’s inability to meet its guide in multiple quarters pre-COVID-19, we think the stock is finally making a turn. The company is running decently ahead of our prior revenue forecast, and well ahead of our prior earnings free cash flow forecast. We now expect $31.8 billion of sales in full-year 2020, adjusted EPS of $8.56, and free cash flow (cash flow from operations less capital expenditures) of $5.9 billion, even with an elevated free cash flow forecast. As a result, we raise our fair value estimate to $180 per share, from $166 previously (or about a 7% raise, net of time value of money impacts). It is our hope that the company continues to deliver on growth once again and re-earn both its premium multiple and reputation as a reliable short-cycle business, whose stocks are best to buy in the early parts of the cycle.

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Company Profile

Business Description

3M is a multinational conglomerate that has operated since 1902 when it was known as Minnesota Mining and Manufacturing. The company is well-known for its research and development laboratory, and the firm leverages its science and technology across multiple product categories. As of 2019, 3M is organized into four business segments: safety and industrial, transportation and electronics, healthcare, and consumer. About 60% of the company’s revenue comes from outside the United States, with the safety and industrial segment constituting most of the firm’s net sales. Many of the company’s 55,000-plus products touch and concern a variety of consumers and end markets.

3M Center Building
St. Paul, MN, 55144
T +1 651 733-1110
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type High Yield
Employees 96,163